A New Economy for the Fourth Industrial Revolution ("A Bat Sneezed" Conclusion)

Updated: Oct 5

Industry 2.0 enabled reinforcing economic growth, but that growth is now limited as viral reservoirs spill over onto the human population. There have been six 21st-century pandemics, five since 2009. More will come, and put us on the cusp of financial and technological changes known as the Fourth Industrial Revolution.


The World Economic Forum, a ‘4IR’ leader calls in its Davos Manifesto 2020 [28] for

"Corporate purpose must expand beyond shareholder capitalism and towards stakeholder capitalism. The corporation is responsible to the Environment, Society and Good Government”.

To date, there are no easy means to measure these important functions, but interested parties begin to align. In August 2019, 181 CEO’s belonging to the Business Roundtable (such as GM, Boeing, Bank of America and BlackRock) signed a corporate governance agreement that “moves away from shareholder primacy and includes a commitment to all stakeholders” [29]. Over 3,000 investment firms, representing over $80 Trillion in assets under management are signatories to the UN-backed Principles in Responsible Investing Initiative, which “acts in the long-term interests of the financial markets and economies in which they operate and ultimately of the environment and society as a whole”. [30] [31]


In January 2020 (just prior to the COVID-19 pandemic), the International Business Council issued a similar statement to encourage discussion of proper metrics:

“…it is important to consider environmental impacts along the full value chain (or ‘lifecycle’) of products or services. Individual businesses often operate in a small section of the overall value chain … but they rely on the continuing commercial viability of all upstream and downstream parts of the chain to sustain their own commercial success.” [32]

Finally, to quote The Butterfly Defect:


“The underlying threat of globalization on a systemic level pertains to the formation of harmonized structures and a failure to ensure ‘resilience’, the capacity of a system to absorb disturbance and reorganize while undergoing change”

Harmonized structures include businesses behaving as a Tragedy of the Commons, in which each act according to individual business metrics without recognizing the larger systemic environment. Upstream and downstream risks cross industry and international boundaries in unexpected ways; while Wuhan’s economy developed to support the global automotive value chain a nearby viral reservoir creates existential risk to the travel and entertainment industries around the globe. Century-old businesses now interconnect in ways unimaginable to their founders. To minimize systemic risk, we need new economic and industrial systems, a few are described here:


Supply Chain Visibility

Globalization has led to long and ‘opaque’ supply chains; manufacturers buy components from ‘first-tier’ suppliers, who in turn buy sub-components from ‘second-tier’, and on and on. Multinational corporations (MNCs) began to recognized systemic supply-chain risk in the 2010's, and created standards for themselves and first-tier suppliers expecting these to cascade down onto sub-tiers. But both the effect on the tiers and visibility into the chain is limited. Villena and Gioia discuss such challenges in a March 2020 article in the Harvard Business Review: [33]


The aim to create a cascade of sustainable practices that flows smoothly throughout the supply chain is hard to realize in practice. Many of the corporations that have committed to it have faced scandals brought about by suppliers that, despite being aware of sustainability standards, have nevertheless gone on to violate them.


Lower-tier suppliers often do not have sustainability expertise or resources, and they may be unaware of accepted social and environmental practices and regulations. They are frequently located in countries where such regulations are nonexistent, lax, or not enforced at all. And typically, they don’t know much about the sustainability requirements imposed at the top-tier —and have no incentive to comply.


Further, the top-tier corporations handicap themselves through their own dysfunction and uncoordinated goals. They don’t know who or where their lower-tier suppliers are, let alone their capabilities. Sub-groups within the MNC make key decisions without sustainability or compliance in mind.


From the HBR article:

Top-tier engineering and procurement units often preapprove lower-tier suppliers, but their vetting criteria doesn’t include social and environmental considerations… Not surprisingly, this leads to situations in which preapproved lower-tier suppliers violate the sustainability requirements of the top-tier consumers they work with.


When we asked a representative at one supplier why his company had violated a 60-hour workweek limit, he gave us a frank explanation: “We didn’t want to tell our customer that we can’t produce its products on time, because otherwise it’s going to try to find someone else that can. But our customer didn’t give us enough notice to hire enough skilled people to do the job.”


Engineering and procurement groups may have de facto authority to drive lower-tier purchasing decisions based on unit cost, without regards for environmental, social or lost opportunity costs. Again, decisions which seem rational to engineering and procurement groups lead to systemic failure.


Localizing Supply Chains


‘Short’ supply chains are more visible and increasingly valuable as nations become cognizant of the risk of transporting diseases and invasive species. Canada has one-tenth the per-capita rate of infection than does the U.S., and has closed its borders to foreign travelers. Whether government-enforced or through individual safety concerns, travel concerns become sand in the gears of the global supply chain. When will nations like Canada (or Japan, New Zealand, Australia) with comparatively low infection rates allow visitors from high infection countries to enter? A similar scenario appeared as tourism drove infection rates in Europe in the late summer of 2020.


Aircraft and automobiles include thousands or millions of parts from dozens of countries; if a U.S. auto assembly plant can’t get tires from Brazil it won’t need engines from Canada. The $20 Trillion U.S. economy imported over $3 Trillion in goods in 2018 [34], much of which as componentry into larger goods. As import frictions rise, lost economic opportunity due to unavailable components will increase. All industries leveraging a global value chain will face similar issues as discussed previously with N-95 masks and pharmaceuticals.


Automation Technologies


Seric and Winkler of the United Nations researched supply shortages in ventilators, and how Industry 4.0 technologies might in the future provide relief: [35]


“One of the main bottlenecks in the current production of ventilators is the timely supply of components due to dependence on inputs produced by global suppliers. Instead of producing the entire product from scratch, countries specialize in different tasks resulting in high interdependencies. One of the leading manufacturers of ventilators declared that it would double its output (in weeks), it relies on its wide network of closely integrated global suppliers for continuing its operations, including timely production of electrical components such as circuit boards or sensors.

“Industry 4.0 unlocks new labor-saving technologies which could potentially reduce reliance on low-skilled, low-cost labor in manufacturing. This has implications for the global geography of production, as value chains can be expected to become more regional in nature, moving closer to key final consumer markets in China, the European Union, Japan and the United States. Industry 4.0 is also likely to have an impact on the length of value chains, as automation could consolidate various steps of the value chain.”


But the increased use of automation implies a need to upskill workforces, and is discussed below.


Digital Manufacturing Twins

In Henry Ford’s time it made sense to assemble the world’s automobiles in Detroit and transport them globally, because knowledge in how to manufacture thousands of cars per day was local to the region. But in the world of 4IR, we can trade digital information about factories, rather than trading physical products. Modern industries design and simulate their products and factories using 3D virtual models (video).


The concept of a Digital Twin is that every physical thing inherently holds information about that thing, such as its size, mass, center of gravity, and chemical or electrical properties. If we want the information about, say, a desk we could use a ruler and a scale to measure length, width, and mass, but if we have the desk’s original designs it is not necessary to make these measurements, we can simply look at the designs. In the past these might have been “ink on paper” blue prints, but modern products are developed using 3-dimensional software to establish dimensions, calculate mass, and simulate how the physical object will behave in the environment. The software can even determine how much mass the desk can hold before it collapses.


There is both a virtual instance of the desk (the 3D computer model), and the physical instance (which holds my PC and coffee cup as I type this). These dual instances create a Digital Twin. [36]


A Digital Manufacturing Twin begins with a virtual instance of a manufacturing plant (much like the virtual desk). An example currently exists in two Siemens electronics plants, one in Amberg, Germany and the other in Chengdu, China:


“We mapped the processes from the Amberg plant to Chengdu on a 1:1 basis,” explains Dr. Gunter Beitinger, who is responsible for Siemens’ Digital Factory Business Units in Amberg, Fürth and Chengdu. From its machinery and software tools to its execution system which records and controls every aspect of the production process from start to finish at a virtual level, the equipment in Chengdu is designed on the same principles and processes as the equipment at the Amberg factory. [37]


To greater and lesser extent, aircraft manufacturers have adopted digital twin strategies (in an earlier part of my career, I helped them with this). As the airline industry will not recover until the development of either a vaccine or a treatment, they might explore new business units around the design and build of vaccine manufacturing plants.


Digitalization and ‘Pop-Up’ Vaccine Factories


An important use of digitalization is in supporting the manufacture and distribution of vaccines and treatments when they are developed. The worldwide potential for a COVID-19 vaccine is five to ten billion units per year* of a perishable and life-saving product. Vaccine doses require low temperature storage and have all the availability concerns of masks and acetaminophen. Doses will require either injection or inhalation devices, implying the need to manufacture, store, distribute, and dispose of large quantities of metal and plastic.


(*The math: The human population in 2020 is about 7.8 billion. There many unknowns, including duration of immunity, the percentage of recovered or inoculated people required for herd immunity, and the number of doses per year needed for inoculation. If 70% of the world needs one dose per year, it’s roughly 5 billion doses.)


Rather than a few large, multi-billion dose factories a more fundamental solution will be to build smaller factories near the population centers which consume the vaccine, syringes, and inhalers. If we arbitrarily assume one factory per fifty million people, it implies the need for 1000 vaccine production factories scattered throughout the world. A virtual instance of a vaccine factory can be physically replicated in a thousand locations to manufacture vaccines locally for nearby populations. (E.g., one factory located centrally to 50 million people.) Each of the thousand physical plants could be identical, as they are based on the same virtual model.


Impact on Workforces


A pre-pandemic 2018 study by The Manufacturing Institute [38] shows that the U.S. will need over 14 million skilled manufacturing workers to meet the needs of 2028, and only ten million of those were working in 2018. Further, the ‘advanced’ manufacturing skills of the Fourth Revolution quickly become obsolete, with only 50% of technical skills relevant after five years.


Only 25% of what ten million workers knew in 2018 will be viable in 2028, and of the remaining 4.6 million positions, less than half will find workers with the necessary skills. And these estimates were made prior to the need to localize supply chains, or build a thousand vaccine factories.


Over the past few decades, the burden of manufacturing the world’s goods moved to low-cost regions, and the U.S. no longer has workers with necessary skills. Supply chains will move onshore, leading to a need for flexible workforces skilled in automation. Businesses must actively focus on creating and improving skills in their current and future workforce if they hope to survive. Among other goals, tuition burdens for post-secondary education will need to shift from students and their parents to employers.


Viral Monitoring


To decrease the likelihood of a virus jumping from bats to humans we must repopulate apex predators into the wild and increase the buffer between humans and viral reservoirs. But we must also assume that some of the millions of unknown viruses will continue their jump to humans, and limiting early viral growth can stop them while they are manageable. Following are a few technological solutions which can diminish their duration and impact, but as this is an aerospace journal note the impact that aircraft play in spreading viral reservoirs. The market for air travel, especially international travel, will be diminished until both travelers and destinations feel confident that airplanes do not carry infectious diseases.


IoT Thermometers


The “Internet of Things” is a large and growing concept that non-computers (“things”) might be connected to the internet. The company Kinsa, sells thermometers which connect to the user’s cell phone, and from there to the internet.


Fever is a symptom of COVID-19, and when people feel sick, they take their temperatures with Kinsa thermometers. The company collects this and posts anonymized fever data to a “health map” on their website, healthweather.us. and can predict when flu-like illnesses will appear about a month before patients call their doctors. In this scenario the number of feverish people in a small region could call for localized lockdowns (rather than state or county-wide lockdowns). As it becomes the norm to have one’s temperature taken upon entering a building, this can provide an important source of data.


Sewage Monitoring


From the UK's Centre for Ecology and Hydrology: [39]


“Scientists will develop a standardized UK-wide system for detecting coronavirus in wastewater, to provide an early warning of future outbreaks and reduce reliance on costly testing of large populations.


“Several studies have shown that the RNA of SARS-CoV-2 - the genetic material of the virus - can be detected in wastewater ahead of local hospital admissions, which means wastewater could effectively become the ‘canary in the coal mine’ for COVID-19 and other emerging infectious diseases.


American Universities are following similar methods. R.I.T, in Rochester, New York, and the University of North Carolina, Charlotte are collecting samples from residence hall basements. Automated means of testing samples are on the near horizon.


Similar to the IoT Thermometers, sewage monitoring could provide localized recognition of this and future viruses. Sewage has an advantage over the thermometers in that it can recognize the virus in a population which does not feel sick enough to take their temperature.

Individual Testing


Sewage monitoring and in-home temperature collection can identify communities in which the virus exists, to be followed by individual testing. South Korea accomplished this at mass scale in, as reported by the United Nations Industrial Development Organization (UNIDO) [40]:


“[South] Korea is using Industry 4.0 technology to test far more people for COVID-19 than has been possible in many other countries and has thereby successfully limited the number of deaths linked to the virus. The Korean company Seegene, which carries out multiplex molecular diagnostics, relied on its artificial intelligence-based big data system to develop a test for COVID-19 within a few weeks, a procedure that usually takes several months to complete. Quick approval by the Korea Centers for Disease Control and Prevention within less than one week ensured that testing for COVID-19 was up and running. Moreover, Seegene’s system uses automatic testing, i.e. samples are analyzed by a diagnostic machine rather than by humans, which speeds up the process and reduces risk of error and contamination.”


Conclusion


I was on a family Zoom call in September 2020, which included two households living near Seattle. Three of their college-age kids had been forced home from Florida, Wisconsin, and California due to COVID-19, and were “attending” classes remotely, with no obvious end in sight. Further no one in either household will exit their homes for long periods due to smoke from fires which are burning hundreds of miles away, last for weeks, and recur yearly.


Is this the society that we want?


The next 10 years will see a rapid change, particularly with regards to how we use the planet. Trillion-dollar asset managers are recognizing that a century of Industry 2.0 has created systemic and catastrophic risks, and find that it is in their own best interests to focus on societal, rather than strictly shareholder, value. I envision economic incentives shifting from consumer-driven to investor-driven; as corporations seek investment to fund new growth, investors will insist on sustainability initiatives to protect their other investments. For a multi-trillion dollar asset management firm, protecting investments prone to fires on the West Coast, hurricanes on the Gulf Coast, or pandemics world wide will cause them to enforce sustainability initiatives across their portfolios.


I teach a graduate course in Engineering Management and many of my students are millennials born around 1990. They were graduating high school as financial markets collapsed in 2009 and expected to buy houses and plan families as the COVID-19 recession appeared in 2020. The global economy is predicted to shrink by more than 5% in 2020, and the U.S. posted its worst unemployment figures ever in Q2-2020. In financial crises over the past two centuries, it has taken a median of seven years for per-capita GDP to return to pre-crisis levels. (Reinhart and Reinhart 2020) Millennials also face high student loan debt, and the increasing impacts of climate change. For their own security and to improve their quality of life they will search for new economic means by which they measure success.


In spite of (or maybe because of) these challenges I see in my students a group who will transform industry and economy in ways not seen in the century since Henry Ford. Our current decade is not starting at all well, but I expect by its end we will see a strong advancement into new measures of industry and economy, based on the triple bottom lines of People, Planet, and Prosperity.

Related Posts:

This and related posts are extracted from a chapter developed for the 2020 Conference Proceedings for the American Institute of Aeronautics and Astronautics, held in Orlando in January 2020.


  • 1: A Bat Sneezed and the Economy Collapsed (Intro)

  • 2: Mass-producing an Efficient Pandemic ("A Bat Sneezed" Pt. 2) Gives a brief history on Mass Production, Lean Management, and "bottom-line efficiency", referred to as Industry 2.0. Originating a century ago these brought unprecedented value to society, but have now reached their limits and create global systemic risks.

  • 3: Systems Thinking and Economic Disruption ("A Bat Sneezed" Pt. 3) Discusses 'Systems Thinking' models, Exponential Growth, Limits to Growth, Shifting the Burden, and Tragedy of the Commons, as means of understanding the systemic nature of the COVID-19 pandemics, and how Industry 2.0 economics will lead to more pandemics.

  • 4: A New Economy for the Fourth Industrial Revolution ("A Bat Sneezed" Conclusion) (This Post) Discusses how 'Industry 4.0', encompassing both new technologies and new economics of "People, Planet, and Prosperity". Includes impacts of Digital Twins, Automation, Reshoring Supply Chains, and Workforce Development.

References


[29] World Economic Forum, "Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution," [Online]. Available: https://www.weforum.org/agenda/2019/12/davos-manifesto-2020-the-universal-purpose-of-a-company-in-the-fourth-industrial-revolution

[30] Business Roundtable website,, [Online]. Available: https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans

[31] Investopedia, "UN Principles of Responsible Investing," [Online]. Available: https://www.investopedia.com/terms/u/un-principles-responsible-investment-pri.asp

[32] United Nations, "Principles of Responsible Investing," [Online]. Available: https://www.unpri.org/signatories/signatory-resources/signatory-directory

[33] World Economic Forum, [Online]. Available: http://www3.weforum.org/docs/WEF_IBC_ESG_Metrics_Discussion_Paper.pdf

[34] V. H. Villena and D. A. Gioia, "“A More Sustainable Supply Chain”," March 2020. [Online]. Available: https://hbr.org/2020/03/a-more-sustainable-supply-chain

[35] J. McBride and A. Chatzky, "The U.S. Trade Deficit: How Much Does It Matter?," 8 March 2019. [Online]. Available: https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does-it-matter

[36] A. Seric and D. Winkler, "Managing COVID-19: Could the coronavirus spur automation and reverse globalization?," April 2020. [Online]. Available: https://iap.unido.org/articles/managing-covid-19-could-coronavirus-spur-automation-and-reverse-globalization

[37] M. Grieves, Virtually Perfect: Driving Innovation and Lean Products Through Product Lifecycle Management, Cocoa Beach, FL: Space Coast Press, 2011.

[38] Siemens Corp., "A Digital Manufacturing Lighthouse," [Online]. Available: https://new.siemens.com/global/en/company/stories/research-technologies/topics/digital-factory-siemens-electronic-works-chengdu.html

[39] The Manufacturing Institute, "Skills Gap and Future of Work Study 2018," [Online]. Available: https://www.themanufacturinginstitute.org/research/2018-deloitte-and-the-manufacturing-institute-skills-gap-and-future-of-work-study/

[40] S. Williams, "Work begins on UK system for estimating COVID-19 cases from wastewater," 2 July 2020. [Online]. Available: https://www.ceh.ac.uk/press/work-begins-uk-system-estimating-covid-19-cases-wastewater

[41] United Nations Industrial Analytics Platform , "Managing COVID-19: Could the coronavirus spur automation and reverse globalization?," April 2020. [Online]. Available: https://iap.unido.org/articles/managing-covid-19-could-coronavirus-spur-automation-and-reverse-globalization

[42] C. Reinhart and V. Reinhart, "The Pandemic Depression," September 2020. [Online]. Available: https://www.foreignaffairs.com/articles/united-states/2020-08-06/coronavirus-depression-global-economy

25 views2 comments
 
  • LinkedIn

©2020 by Patrick Hillberg. Created with Wix.com